If AI stagnates, then some human will out-perform it and be able to sell their work. The AI won't be able to generate competitive work because it's stagnant at a lower level.

I'm not arguing free market is all positive, just pointing out that the whole reason people see free markets as a good thing is because they benefit people (consumers). They have downsides too but those aren't the reason they're popular. Nobody wants free markets so they can get poisoned more easily.